Can America spend its way to economic recovery?

Shovel-ready: Workers from Millstone Bangert Construction Co. smooth the top of the freshly laid concrete on a ramp onto Interstate 64 in St. Louis. Governors are eager for federal help on such projects.

Emily RasinskiSt/Louis Post-Dispatch/AP

View photo

Washington

With the US economy floundering, a massive new federal spending program to avert a deeper fall is gaining momentum, but critics are beginning to mount a resistance.

They concede it will be tough slogging, in part because the “let the markets work” strategy has failed so conspicuously and in part because people don’t want to hear that years of excess have their price.

“The message that things have gone wrong [and] we have to take our lumps is not a popular message,” says Tyler Cowen, an economist at George Mason University in Fairfax, Va. “It’s counterintuitive to say for 15 years that Americans have spent too much and taken on too much debt and then to think the way out of the mess is to have the government borrow some more and spend for us.”

For Washington’s vast retinue of lobbyists and think tanks, the prospect of $1 trillion in new spending is the top issue of the preinaugural season. For many Republicans among them, the notion that government spending at this scale is “the solution” undercuts the core principle they hope to use to rebuild the party brand and work back to power.

Even longtime allies, such as the US Chamber of Commerce and usually reliable conservative economists, were joining the big-stimulus bandwagon.

Last week – following press reports that the Obama transition team could find only one economist opposed to a big stimulus plan – House Republican leader John Boehner sent out a call to economists to make their doubts known. By Monday, 100 economists had responded, say Boehner aides.

“Since putting out the call for outside economists’ opinions on President-elect Obama’s proposed $1 trillion economic ‘stimulus’ spending plan, we’ve been contacted by dozens of economists and academics eager to add their name to the list of stimulus-spending skeptics,” said Rep. Boehner on his leader’s blog.

By the start of the 111th Congress in January, congressional GOP leaders hope to have built momentum of their own for a coherent and credible alternative plan anchored in tax relief and longer-term, pro-growth policies.

Save more, not spend more. Extend the Bush tax cuts, set to expire in 2010.

Senate Republican leader Mitch McConnell is expected to lay out a GOP strategy for economic recovery next week.

Opposition from Senate Republicans sank prospects for a congressional bailout for the auto industry earlier this month, and seven GOP senators signed a letter last week to President Bush urging the administration not to use Troubled Asset Relief Program (TARP) funds to bail out the auto industry until Detroit automakers and the United Auto Workers union make serious concessions.

“Absent such restructuring, we do not believe any amount of money will succeed in saving these companies,” they wrote.

But many GOP lawmakers concede that there isn’t yet consensus within their caucus on how to use government clout in tough economic times.

“There’s the obvious concern that we’ve become addicted to the ready flow of government cash when there is trouble in the markets,” says Sen. Jeff Sessions (R) of Alabama, who opposes using TARP funds to help automakers.

“Now, you see business commentators and talking heads on the business channels repeatedly making snide and disparaging comments about these spending programs and the things that are being done to undermine the normal business cycle,” he says. “But what is troubling is that there is no rigorous body of thought that questions the wisdom of [using] TARP or the additional trillion in spending that President-elect Obama is looking for.

“The power is with the Chamber of Commerce and the Republican president and the Republican secretary of Treasury, and if they concede free-market principles for short-term gain, then we’re in a world of hurt,” he adds.

But critics say eight years of the Bush administration’s economic policies have damaged the Republican Party’s credibility to contest the claims of big government.

“I see a seamless transition from Bush to Obama – the only difference is that we’re replacing an interventionist, big-government, borrow and spender with an interventionist, big-government, tax and spender,” says Dan Mitchell, a senior fellow at the Cato Institute, a libertarian think tank.

The case to be made is that the economy is in free fall precisely because government has done so much to it, he says, and the excesses of the GOP years in power – from expanding government to outright corruption – have not helped. “A lot of people on my side have been so dispirited by what has happened in the last eight years that you’re not really seeing a lot of vigor [in opposition],” he adds.